Makers UK Ltd v. Office of Fair Trading: Establishing Precedents on Collusive Tendering Practices under Competition Act 1998

Introduction

Makers UK Limited ("Makers") appealed against a decision by the Office of Fair Trading ("OFT") that found Makers and other roofing contractors engaged in collusive tendering practices. The case, adjudicated by the Competition Appeals Tribunal on 22 February 2007, centered around allegations of bid rigging in the tendering process for a roofing contract at Elliott House in London. The key issue was whether Makers had colluded with other contractors, specifically Asphaltic and Rock, to fix bid prices, thereby violating section 2(1) of the Competition Act 1998 ("the Act"), which prohibits practices that prevent, restrict, or distort competition within the United Kingdom.

Summary of the Judgment

The Tribunal upheld the OFT's decision, concluding that Makers had indeed participated in collusive tendering practices. The evidence revealed that Makers submitted a tender with figures identical to those in a fax sent by Rock to Asphaltic, indicating a coordinated effort to manipulate bid prices. As a result, Makers was fined £526,500 for infringing the Competition Act. Makers challenged both the finding of infringement and the penalty's magnitude, arguing that the penalty was disproportionate and discriminatory compared to other similar cases. However, the Tribunal found Makers' explanations for the identical bid figures unconvincing and maintained that the penalties were justified and non-discriminatory.

Analysis

Precedents Cited

The Tribunal referenced several key cases to frame its analysis, including:

Apex Asphalt and Paving Co Limited v Office of Fair Trading [2005] CAT 4: Established that cover bidding undermines the competitive tendering process by allowing bidders to appear competitive without genuine intention to win.
Argos & Littlewoods v OFT and JJB Sports v OFT [2006] EWCA Civ 1318: Clarified the application of concerted practices, emphasizing that comparable situations must be treated equally unless objectively justified.
Dyestuffs [Case 48/69] and Suiker Unie [Case 40/73]: Defined "concerted practices" as forms of coordination substituting for competition risks.
JFE Engineering Corp & ors v Commission [2004] ECR II-2501: Addressed the principles for equal treatment in penalty assessments.

Legal Reasoning

The Tribunal's legal reasoning focused on the definition and implications of "concerted practices" under the Act. It determined that Makers' actions constituted a concerted practice aimed at fixing tender prices, thereby preventing genuine competition. The identical figures in Makers' tender and the fax from Rock to Asphaltic served as compelling evidence of collusion. The Tribunal emphasized the importance of independent bidding in tender processes and how any coordination undermines the fairness and integrity of competitive bidding.

Additionally, the Tribunal examined the burden of proof, which lies with the OFT, and the standard of proof required—the balance of probabilities. Given the gravity of the infringement, the Tribunal found that the evidence sufficiently met this standard.

Impact

This judgment reinforces the stringent application of competition laws concerning tendering processes. By upholding both the finding of infringement and the penalty, the Tribunal sends a clear message to undertakings about the consequences of collusive practices. The case serves as a precedent for future cases involving similar allegations, emphasizing the necessity for independent and genuine competitive bidding. Moreover, it underscores the importance of meticulous penalty calculations and the adherence to established guidelines to ensure penalties are fair, proportionate, and non-discriminatory.

Complex Concepts Simplified

Concerted Practice

Concerted practice refers to a form of cooperation between businesses that replaces the risks inherent in competition with coordinated actions. Unlike explicit agreements, concerted practices may not be formally documented but are inferred from the behavior of the parties involved. In this case, identical bid figures suggested that the companies were not independently competing but were instead coordinating their bids to influence the tender outcome.

Cover Bidding

Cover bidding occurs when one contractor submits a bid without the intention of winning, often after communicating with the likely winner. This practice creates the illusion of competitive bidding while ensuring that the selected bidder remains undisturbed from contesting the tender price, effectively fixing the price and distorting competition.

Minimum Deterrence Threshold (MDT)

MDT is a concept used in penalty calculations to ensure that fines are proportionate and serve as effective deterrents. It adjusts penalties based on the undertaking’s turnover to ensure that the fine has sufficient deterrent effect relative to the company's size and market presence. In this case, the OFT applied the MDT to determine an appropriate uplift to the penalty, ensuring it served as a significant deterrent against future infringements.

Conclusion

The Makers UK Ltd v. Office of Fair Trading judgment serves as a pivotal reference point in UK competition law, particularly concerning collusive practices in tendering processes. By affirming the breach of section 2(1) of the Competition Act 1998 and upholding substantial penalties, the Tribunal reinforces the legal framework aimed at preserving fair competition. The case highlights the critical need for independence in competitive bidding and the severe repercussions of undermining such processes. Moving forward, businesses must ensure transparent and genuine competitive practices to avoid similar infringements and penalties.